As part of my role as a Real Estate Broker, I provide contacts of my partners for my Buyers & Sellers. Everything from Painters to Lawyers, to Inspectors and Financing Professionals. To help my clients, I've begun reaching out to my Preferred Partners for their insights on their part in the process of buying and selling your most valuable financial asset. Below is the first in an ongoing series that I will feature on my blog of topics of interest to you. Of course if there is any topic that you would like to see covered, send me an email and I'll work on getting it blogged about!
I'm pleased to introduce Erica Vincelli of The Mortgage Advisors:
What to expect after completing the application but before finding the perfect home
As a mortgage broker, I get tons of questions but it seems they are the same questions asked many different ways. Some of the top questions include: (but not limited to)
- how much does it cost to work with you? (or how do you get paid?)
- Why should I use a broker versus a bank?
-How much or little do I have to use as my down payment?
-How much should I save?
-What is the process of working with a mortgage broker?
These are all very good questions, many of which I will answer over the course of the next 12 months in this blog but I want to remind everyone that there are more than just these few questions so I will also give you some questions you SHOULD ask:
(many of which you can see on my website: http://www.ericavincelli.com/ask_Erica.html)
One of the least asked questions and one of my favorites, because it lets me know how serious someone is about buying, is
“what is the process once I complete an application but before I buy the perfect home?”. This means someone is looking past the inquiry stage and wants to get their ducks in a row so they can take action as soon as they find the perfect home and have placed an offer.
The first thing anyone should know about mortgages is they are like snowflakes; no two are exactly the same. What I am writing here is a general statement about the process but please respect that if we speak and I deviate from this method that it is because when we speak I am tailoring all my advice and guidance to your circumstances and financial profile.
That said this is a very good guideline to follow. After we’ve spoken, emailed and/or met and you have decided to complete an application, you hit SEND and then what?? Well, this is what I do behind the scenes:
I start by reviewing your financial profile and pull your credit report so I can have as much accuracy as possible. To be honest, I start “prepping” the application from the first phone call. I ask the questions that will tell me what’s going on today and ask the questions to know what might be important for tomorrow. We don’t always know what will happen in the future but most times people know if they want to grow a family, if they are going to pay for education or try to reduce or eliminate debt (just to name a few). By knowing this I am able to use that information when I start looking for the right lender. In the first email to any client (sometimes even prior to a completed application), I send a list of documents the lender will request (please note, additional items may be requested by the lender). I want to get these items along with the application so I can cross reference some of the information, especially income. You don’t know how many times someone says they make about $50K a year only to find out that they earn $48K…that $2K per year may have a much bigger impact on your affordability that you might think and may honestly make or break your chances at buying your first home. With all the documents I request the sooner you can get them to me, the better!!! The quicker you can provide these documents, the easier the mortgage process can be and my job is to make the whole home buying experience as wonderful and stress free as possible.
One have all the correct info I begin comparing your income to your debt. This is called debt servicing ratios or GDS (Gross Debt Services ) and TDS (Total Debt Services). I need to make sure that your income can support not only the mortgage payments, property taxes, condo fees (if applicable) and heat (yes, because we live in Canada, heat is part of your affordability), I have to be sure that you can afford all this in addition to all other debts/liabilties.
If you have car loans, student debt, alimony/support payments or lines of credit, all these debts have to be factored in to your application and affordability. The rule of thumb is 42% of your gross monthly income has to cover of all your monthly debts including monthly housing costs (listed above). My mortgage application system adds up all your debts (obtained from your credit report) and then I “play with numbers” to determine your affordability. I provide you with two purchase price amounts: the first purchase price that works with the budget we discussed in our phone call or meeting and the second one I give you is the maximum purchase price based on your debt servicing ratio. These numbers might be very close together or very far apart, depends on the number but the numbers don’t lie.
I input a purchase price, down payment (either the amount you have saved up or use the minimum 5% based on the pruchase price), I use 1% for property taxes (industry average when guesstimating) and include an average condo fee amount (if applicable), plus $100 for heat and verify it with the GDS and TDS to make sure the numbers work. I can increase or decrease the purchase price, down payment, condo fees and propety taxes to come up with the magical number that fits nicely in your debt servicing ratios and budget. Once I have your ratios in line I note down the range of affordability.
After confirming the information on the application and determining your affordability, I begin looking at the lenders that will not only have the lowest rate you qualify for but I’m looking for the right mortgage product. That means, I look for a mortgage that meets the needs of you and your family for today and tomorrow. Remember the questions I asked you in our first phone call? Well, in that conversation you told me that you receive an annual bonus from work that you can use to pay down some of your mortgage and that you may move in three to five years for work. So now I want to find a mortgage that has good prepayment priveledges so you can put extra money on the mortgage each anniversary without penalty and I want to explore not only a shorter term mortgage but maybe also a variable, and I have to make sure the mortgage product is portable or transferable so you can bring the mortgage with you in case you move or you can transfer it to the new buyer if you sell it early. A lot to think about and it’s more than just a low rate.
Everyone wants the lowest rate, I get that, I do too, however, my job is to find the perfect mortgage with the lowest rate you qualify for. I will always find you the best and lowest rate I can but you have to remember that the lowest might not be the best. It would seem silly to put a client in a mortgage that has the lowest rate by .05% but has higher penatly costs. I save you $60/payment and you can brag to all your friends about having a low rate but you break your mortgage early and it costs you over $10K. What kind of service is that? Lowest rate doesn’t always mean best mortgage. It may seem simple but I work with roughly 30 lenders, banks and trust companies across Canada and I want to make sure that I am doing all the research that goes into finding YOU the best mortgage.
So here we are; your info is confirmed, your budget is set, I have the perfect lender with the best mortgage and lowest rate you qualfy for and now what?? Well, now you go SHOPPING!!!!!! Enjoy it because people say it’s the best part. Personally, I don’t agree, I think the mortgage is the most fun but I guess I’m a bit biast. Once you found the perfect home and negotiations are through, then the real fun starts…well, at least I think so: The mortgage process, the 5-10 days I have to confirm your financing clause …..tune in next time to know what to expect with the mortgage process and subject to financing clause.
If you have any questions, comments please don't hesitate to reach out!